Senk's Exit Sinks Urban Outfitters (URBN)

Shares of apparel retailer Urban Outfitters (URBN: Charts, News) plunged nearly 20% on Wednesday on news that long-term CEO Glen Senk, who has led the company since 2007, was abruptly leaving the company to join privately held jeweler David Yurman. 55-year old Senk joined Urban Outfitters nearly 18 years ago as the president of its Anthropologie division.

Co-founder Richard Hayne, 64, will replace Senk effective February 27. Hayne's appointment has attracted skepticism, with many analysts expressing doubts that Hayne would remain in the CEO post for long. Paul Atkinson, head of private equity firm Aberdeen Asset Management, cited the lack of a "strong hand in day-to-day management" while Citigroup analyst Jeff Black commented that "organizational issues could remain a serious distraction over the next year." Daily Chart

If you are not able to see the chart, your email client probably does not support javascript. To view it, please click here Investors were also disappointed with the timing of Senk's exit, which comes in the middle of a previously planned turnaround effort, suggesting that trouble is brewing at the parent company of the Free People, Terrain and Anthropologie apparel brands. Long-term investors in Urban Outfitters have been continually disappointed with its volatile but range-bound stock performance - shares are worth the same as they were five years ago - and further delay of Senk's ambitious turnaround project could punish shares further. Despite the initial pessimism regarding Richard Hayne's appointment, there are also reasons to believe that he might be a suitable long-term successor to Senk. The elder Hayne co-founded the company in 1970, and has remained a chairman and president since 1976. The company issued a statement touting Hayne's strengths, stating, "Mr. Hayne has been instrumental in the company's historical success and we are extremely fortunate to have an executive of Dick's caliber in place." Investors should also recall that Senk's time at the helm was hardly an era of growth and success. The company suffered four consecutive quarters of sales declines in the past year, which Senk blamed on increasing competition, poor fashion appeal and a clogged inventory. Senk used extreme markdowns to clear the excess inventory, at a huge cost to the company's margins. The company's domestic stagnation hasn't been helped by its international stores, which are primarily based in Europe - the current epicenter of the world's economic woes. Senk's era was also marred by a series of controversial design choices that offended the Jewish and Navajo communities between 2007 and 2011. In addition, local artists in Brooklyn accused the company in May 2010 of stealing their work and designs for mass production purposes. In May 2011, a similar incident occurred with a designer from an online store on Esty claiming that her design was stolen by Urban Outfitters and reproduced without her permission. The accusers were publicly supported by singer Miley Cyrus, who sparked a crusade against Urban Outfitters on Twitter, claiming that "they steal from artists". The company also offended European communities in November 2009 when it denied its Swedish employees at its Stockholm location any collective bargaining rights, firing all 48 employees and replacing them through a new employment agency. Hopefully, under Hayne's leadership, similar PR gaffes can be avoided. Although Urban Outfitters posted a 11% gain in revenue throughout November and December, tough competition and excess inventory led to steeper than expected markdowns, which should reflect poorly in its earnings per share when it releases its fiscal 2011 results on February 9. Yet despite these profit-sacrificing moves, Urban Outiftters' operating margins - at 18.2% - remain roughly double its industry peers. Looking forward, Hayne has a harsh uphill battle ahead, as these peers have all suffered similar fates due to domestic stagnation and an increasingly fragmented market. Abercrombie & Fitch (ANF: Charts, News), Aeropostale (ARO: Charts, News) and The Gap (GPS: Charts, News) have also posted terrible results for several quarters, and shares have crashed accordingly. The standout is American Eagle (AEO: Charts, News), which has outperformed its peers due to its teen appeal and strong same-store sales. With a forward P/E of 15.2 and a PEG ratio of 1.08, shares look attractive on a technical basis. However, the domestic retail apparel industry is a hard one to thrive in, and the sudden departure of its CEO may hold the stock back for the foreseeable future. Other News About URBNUrban Outfitters CEO leaves Senk suddenly departs, and Hayne takes his place. David Yurman taps Glen Senk as CEO Glen Senk finds a new job heading a private jeweler. Other Stocks in the NewsAmerican Eagle Swoops In on Teens Inside American Eagle's success in the retail apparel arena. Nordstrom Expands in Virginia Nordstrom continues its plans for expansion. Copyright 2011 by InvestorGuide.com, Inc. InvestorGuide has no control over the sites we link to, is not affiliated with these sites, and cannot take responsibility for their quality or suitability. The news, analysis, commentary and profile information is not meant to be comprehensive, and the data provided is not guaranteed to be accurate. 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Published on Jan 13, 2012

By Leo Sun

Leo Sun is a freelance finance writer and position trader. He focuses on a combination of value and momentum investing, with a strong interest in the trading philosophies of Warren Buffett and Peter Lynch. Leo also has experience writing articles to help small business owners acquire loans and manage their finances. He regularly contributes to the Stock of the Day analysis.